econstor
www.econstor.eu
Der Open-Access-Publikationsserver der ZBW – Leibniz-Informationszentrum Wirtschaft
The Open Access Publication Server of the ZBW – Leibniz Information Centre for Economics
Hoxby, Caroline M.
Article
Economics of education
NBER Reporter Online
Provided in Cooperation with:
National Bureau of Economic Research (NBER), Cambridge, Mass.
Suggested Citation: Hoxby, Caroline M. (2011) : Economics of education, NBER Reporter
Online, National Bureau of Economic Research (NBER), Cambridge, Mass., Iss. 1, pp. 1-5,
http://hdl.handle.net/10419/61978
Nutzungsbedingungen: Terms of use:
Die ZBW räumt Ihnen als Nutzerin/Nutzer das unentgeltliche, The ZBW grants you, the user, the non-exclusive right to use
räumlich unbeschränkte und zeitlich auf die Dauer des Schutzrechts the selected work free of charge, territorially unrestricted and
beschränkte einfache Recht ein, das ausgewählte Werk im Rahmen within the time limit of the term of the property rights according
der unter to the terms specified at
→ http://www.econstor.eu/dspace/Nutzungsbedingungen → http://www.econstor.eu/dspace/Nutzungsbedingungen
nachzulesenden vollständigen Nutzungsbedingungen zu By the first use of the selected work the user agrees and
vervielfältigen, mit denen die Nutzerin/der Nutzer sich durch die declares to comply with these terms of use.
erste Nutzung einverstanden erklärt.
zbw
Leibniz-Informationszentrum Wirtschaft
Leibniz Information Centre for Economics
NBER
Reporter
NATIONAL BUREAU OF ECONOMIC RESEARCH
Reporter OnLine at: www.nber.org/reporter 2011 Number 1
Program Report
IN THIS ISSUE
Program Report Economics of Education
Economics of Education 1
Research Summaries Caroline M. Hoxby*
Urban Growth and Climate Change 6
Reducing the Risks of Catastrophes 9
Trade Agreements as Incomplete Contracts 12 The Economics of Education Program is both exciting and productive,
The Impact of Employee Pension Promises 15 currently adding new Working Papers at the rate of 7.5 per month — a 50
percent increase from the rate at the time of my last program report in fall
NBER Profiles 18 2006. The number of papers submitted for a typical Program Meeting is
Conferences 20 often ten times the number of available slots, and attendance at those meet-
NBER News 21 ings is high.
Program and Working Group Meetings 25 I am particularly proud of three aspects of the Program. The first is
Bureau Books 30 the quality of the research being produced and the methods used by mem-
bers, including some of the latest, most rigorous methods in applied micro-
econometrics. The second is the fact that members use some of the richest,
most comprehensive datasets in economics — many of these datasets were
initially compiled by schools or school-related organizations, and program
members deserve enormous credit for their resourcefulness in making them
useful for economic research by establishing strong, collegial relationships
with data providers, convincing schools to conduct randomized and other
policy experiments, matching data from diverse sources, and themselves
surveying or testing people when data otherwise would be missing. Third,
program members produce research that is policy relevant, credible to
policymakers, and grounded in economic logic.
The NBER’s Higher Education Working Group was integrated into
the Economics of Education Program in 2009. We made the integration
an occasion to celebrate the leadership of Charles T. Clotfelter, director of
that working group, who oversaw an immense improvement in the quality
of research on the economics of higher education. Although the practical
policy questions differ across the two levels of education, all of the meth-
ods, much of the data, and much of the deep economic logic are shared.
*Hoxby is the Director of the NBER’s Program on Economics of Education
and the Scott and Donya Bommer Professor of Economics at Stanford
University. The numbers in parends throughout this report refer to NBER
Working Papers. A complete list of NBER Education Working Papers can be
found at: www.nber.org/papersbyprog/ED.html
NBER Reporter • 2011 Number 1
Areas of Continuing Interest
NBER Reporter and New Interest
In my last review, I focused on three areas in
which research was advancing particularly rap-
idly: the analysis of peer effects; the estimation
of teachers’ effects on achievement; and mak-
The National Bureau of Economic Research is a private, nonprofit research orga-
nization founded in 1920 and devoted to objective quantitative analysis of the ing sense of students’ college choices (not just
American economy. Its officers and board of directors are: whether to attend college in the first place, but
President and Chief Executive Officer — James M. Poterba which schools to attend and whether to persist
Controller — Kelly Horak at each school). These three areas continue to be
BOARD OF DIRECTORS
highly productive. For instance, Elias Bruegmann
and C. Kirabo Jackson (15202) demonstrate that,
Chairman — John S. Clarkeson when a teacher whose own effect on achievement
Vice Chairman — Kathleen B. Cooper
Treasurer — Robert Mednick is strongly positive moves into a new school, her
new colleagues improve. They further show that
DIRECTORS AT LARGE the colleagues’ improved ability to raise achieve-
Peter Aldrich Jessica P. Einhorn Michael H. Moskow ment is attributable to their changing, not merely
Elizabeth E. Bailey Mohamed El-Erian Alicia H. Munnell to selection. That is, incumbent teachers in the
Richard Berner Jacob A. Frenkel Robert T. Parry
John Herron Biggs Judith M. Gueron James M. Poterba new school raise their performance. For another
John S. Clarkeson Robert S. Hamada John S. Reed example, we now have substantial evidence on
Don R. Conlan Peter Blair Henry Marina v. N. Whitman what happens to a student who goes to a school
Kathleen B. Cooper Karen N. Horn Martin B. Zimmerman
Charles H. Dallara John Lipsky where other students are high-achieving: his own
George C. Eads Laurence H. Meyer achievement rises. This evidence relies on regres-
sion discontinuity methods, that is, on compar-
DIRECTORS BY UNIVERSITY APPOINTMENT
ing the later achievement of students who are just
George Akerlof, California, Berkeley Mark Grinblatt, California, Los Angeles above and just below some admissions thresh-
Jagdish W. Bhagwati, Columbia Marjorie B. McElroy, Duke
Glen G. Cain, Wisconsin Joel Mokyr, Northwestern old, where the threshold is not known to stu-
Alan V. Deardorff, Michigan Andrew Postlewaite, Pennsylvania dents when they apply. Christian Pop-Eleches
Ray C. Fair, Yale Uwe E. Reinhardt, Princeton and Miguel Urquiola (16886) study this situation
Franklin Fisher, MIT Craig Swan, Minnesota
John P. Gould, Chicago David B. Yoffie, Harvard in Romania; Damon Clark (“Elite Schools and
Academic Performance”, presented at the spring
DIRECTORS BY APPOINTMENT OF OTHER ORGANIZATIONS 2007 Program Meeting) studies this situation in
Jean Paul Chavas, Agricultural and Applied Economics Association England; and C. Kirabo Jackson (16598) studies
Martin Gruber, American Finance Association this situation in Trinidad and Tobago. Turning to
Ellen Hughes-Cromwick, National Association for Business Economics college-going behavior, some of the most inter-
Arthur B. Kennickell, American Statistical Association
Thea Lee, American Federation of Labor and esting new research provides rigorous evidence
Congress of Industrial Organizations on how students respond to scholarships and
William W. Lewis, Committee for Economic Development other financial aid designed to improve their col-
Robert Mednick, American Institute of Certified Public Accountants
Alan L. Olmstead, Economic History Association lege outcomes. Aimee Chin and Chinhui Juhn
John J. Siegfried, American Economic Association (15932) show that allowing undocumented stu-
Gregor W. Smith, Canadian Economics Association dents to pay in-state tuition (usually just one-third
Bart van Ark, The Conference Board
to one-half of out-of-state tuition) has no statis-
The NBER depends on funding from individuals, corporations, and private foun- tically significant effect on their college atten-
dations to maintain its independence and its flexibility in choosing its research
activities. Inquiries concerning contributions may be addressed to James M. dance. Stephens Desjardins and Brian McCall
Poterba, President & CEO, NBER 1050 Massachusetts Avenue, Cambridge, MA (“The Impact of the Gates Millenium Scholars
02138-5398. All contributions to the NBER are tax deductible. Program”, presented at the spring 2008 Program
The Reporter is issued for informational purposes and has not been reviewed by Meeting) show that Gates Scholarships very mod-
the Board of Directors of the NBER. It is not copyrighted and can be freely repro- estly improved persistence among the low-income
duced with appropriate attribution of source. Please provide the NBER’s Public
Information Department with copies of anything reproduced. minority students eligible for them.
Since my last report, several new themes
Requests for subscriptions, changes of address, and cancellations should be sent also have emerged in Economics of Education
to Reporter, National Bureau of Economic Research, Inc., 1050 Massachusetts
Avenue, Cambridge, MA 02138-5398. Please include the current mailing label. research. Two notable ones are the importance
of information and the role of incentives for stu-
2 NBER Reporter • 2011 Number 1
dents, teachers, and schools. Because any Oreopoulos, and Lisa Sanbonmatsu when viewed against the background of
program review is necessarily selective, I (15361) designed an experiment in coordi- family income or the potential returns to
focus here mainly on illustrating these new nation with the tax preparer H&R Block. college attendance. Yet, the policy change
themes. Some families with college-aged children caused about 40 percent of students to
were randomly assigned to be given infor- send their scores to an additional school.
The Importance of Information mation on their child’s eligibility for gov- This generated some additional informa-
ernment-based financial aid and on local tion for students because, when a student
Much of the existing research on edu- college-going options. Some families also who is a plausible applicant sends his scores
cation concerns the change in some con- were randomly assigned to receive help to a school, that school responds with bro-
crete resource: a salary increase for teach- in filing the federal application for finan- chures and other materials describing its
ers; a reduction in class size; a scholarship cial aid (“FAFSA”). The results, which offerings. It is striking that such a modest
or other financial aid for students; the are highly credible owing to the random- change in information produced such siz-
extension of compulsory schooling; or ized design, suggest that the intervention able effects on behavior.
the opening of a program. Although such that combined information and FAFSA Avery and Turner (“Playing the
resource changes often can be shown to help actually caused people to be 25 to 30 College Application Game”, presented at
change educational outcomes, their effects percent more likely to enroll in college. the fall 2009 Program Meeting) and Avery
typically are much smaller than proponents These effects are dramatic in size for such a and Hoxby (“The Missing One-Offs”, pre-
believed they would be. Also, two students modest intervention — one that, if imple- sented at the 2010 Summer Institute) dem-
with similar prior achievement often react mented routinely, would cost only a few onstrate that low-income students apply to
to resources in very different ways. For dollars per family. fewer and less selective colleges than their
instance, although making financial aid Todd Stinebrickner and Ralph more affluent counterparts who have the
more generous causes some students to Stinebrickner (14810) investigate whether same test scores and achievement in high
attend college or to persist longer in college, students learn about their academic ability school. This fact holds even for low-income
a good share of students do not respond. in college and make decisions about per- students whose achievement is so high
Frustratingly for researchers, the students sisting in a logical way, based on that infor- that they qualify for free tuition and liv-
who do not respond often look very simi- mation. To study this question, they com- ing expenses at the most selective colleges
lar to the students who do. (On this point, bine rich administrative data from Berea in the United States. The authors of these
see for instance the Desjardins and McCall College with data from surveys they con- papers assemble an array of evidence that
paper mentioned above.) Put another way, ducted themselves. Thus, they are able to indicates that low-income students lack
researchers have been unable to show that observe not just students’ academic behav- information about college-going. While it
policymakers could control and improve ior, such as their course-taking patterns is hard to argue that these students do not
most people’s educational outcomes simply and the grades they earn, but also stu- have access to materials (since most col-
by controlling policies that are concerned dents’ beliefs about their academic aptitude leges’ materials are readily available online),
with educational resources. and expectations about college completion. they have few contacts with people who
Responding to the weak explanatory The authors show that students enter col- attended selective colleges. They are fre-
power of resource-type policies, research- lege with beliefs about their academic abil- quently too isolated geographically to find
ers increasingly have wondered whether ity that are both optimistic and diffuse. a critical mass of college-going peers or
differences in students’ and families’ infor- Moreover, the students update their beliefs advisors. In fact, the latter paper shows that
mation can account for variation in edu- in the manner predicted by the Bayesian it would not even make sense for selective
cational outcomes. Recent findings from learning model. Students’ learning about colleges’ staff to visit the schools or cities of
behavioral economics, which often show their own aptitude explains much of their most low-income, high-achieving students:
that apparently small differences in the decision to drop out of college. they are simply too isolated for the benefits
content or framing of information can Amanda Pallais (“Why Not Apply?” of such visits to outweigh the costs. The
have large effects, have only intensified presented at the spring 2008 Program bottom line is that information interven-
education researchers’ focus on informa- Meeting) shows that an apparently tiny tions might be warranted, but they may
tion. There are practical reasons to focus on change in ACT policy produced a 20 per- prove hard to design — see Avery (16359).
information as well: information interven- cent increase in students’ applications to Informational differences among stu-
tions tend to be very inexpensive compared colleges. The change was that ACT, one dents are also important in primary and
to resource-type interventions (so that even of the two college aptitude testing orga- secondary education. Parag Pathak and
modest benefits may outweigh costs) and nization in the United States, gave stu- Tayfun Sönmez (16783; also “Leveling
often have positive spillovers (useful infor- dents four free score reports instead of the Playing Field,” 2008 Summer Institute)
mation given to one person tends to spread three. Because an additional score report show that school choice mechanisms
to other people). cost only $6 before and after the pol- that are susceptible to strategic manipula-
Eric Bettinger, Bridget Long, Philip icy change, the intervention was negligible tion tend to generate better outcomes for
NBER Reporter • 2011 Number 1 3
families who are more informed. That is, private schools. The authors interpret these Incentives for Students,
although all students have the same oppor- results as showing that report cards gen- Teachers, and Schools
tunities under these mechanisms, students erate competitive pressure on schools to
who understand how the mechanisms work increase price-adjusted quality. Even though improving incentives is
and which schools are in demand end up Jonah Rockoff, Douglas Staiger, often more expensive than improving infor-
enrolling in schools that are higher in their Thomas Kane, and Eric Taylor (16240) mation, incentive-type interventions are
preference rankings. These better informed study another informational intervention often much less expensive than resource-
students disproportionately have parents that appears small yet had big effects. They type interventions, especially when their
who are affluent and educated. Thus, supe- evaluate the effect of a program in which relative efficacy is taken into account. This
rior information is one reason why stu- New York City school principals were pro- is shown by an array of recent research
dents’ outcomes are correlated with their vided with estimates of how much each done by program members.
family’s socioeconomic circumstances. of their teachers had raised students’ test Joshua Angrist, Daniel Lang, and
Abigail Wozniak and Ofer Malamud scores. Principals were randomly assigned Philip Oreopoulos (12790) and Joshua
(16463) explore another reason why stu- to this program, so the study’s findings Angrist, Philip Oreopoulos, and Tyler
dents from more educated families have are highly credible. The authors show that Williams (16643) explore incentives
better outcomes. They investigate the principals update their beliefs about teach- for students to improve their grades in a
long-standing hypothesis that more edu- ers’ effects in accordance with the Bayesian Canadian university. In the former paper,
cated people respond more elastically to learning model: for instance, principals they study students who are randomly
changes in opportunities. (Theodore W. update their beliefs more when the esti- assigned to receive a merit scholarship if
Schultz often is credited with originating mates provided to them are more precise they maintain solid grades. In the second
this idea. See Bowman, 1980, cited in end- and their own prior opinions are less pre- paper, they study students who are ran-
note.) Specifically, Wozniak and Malamud cise. More importantly, principals are like- domly assigned to receive cash for better
investigate people who were induced to lier to retain their effective teachers (and grades: $100 for each grade of 70 or better
attend college because they had a higher not retain their ineffective ones) when they and an additional $20 for each percentage
risk of being drafted for the Vietnam War. are provided with the estimated teacher point above 70 percent. They find that the
They use draft induction risk as an instru- effects. The change in the sensitivity of merit scholarship improved the grades and
ment for attending and graduating from retention to performance improves stu- persistence of female students, though not
college, and they show that college educa- dent achievement by a statistically signif- of males. Interestingly, they also find that
tion makes a person more likely to subse- icant though small amount. Here, it is the availability of the merit scholarship
quently choose his labor market experience worthwhile to remember the cost-bene- caused female students to seek out more
based on expected earnings, as opposed to fit ratios typical of information interven- help with their courses: they were more
the market’s mere proximity to his place of tions: although the change in achievement likely to take advantage of supplemental
origin. is small, the cost of the intervention is very instructional services. In the latter paper,
School report cards — simple reports small on an ongoing basis. the authors find that the cash rewards
that describe students’ achievement in Finally, Eric Taylor and John Tyler improved males’ achievement, though not
absolute terms and relative to other local (16877) examine a highly reputed teacher females! The effects on males are modest
schools — are very inexpensive to provide. evaluation system and find that it improves overall, but larger for males who under-
Asim Khwaja, Tahir Andrabi, and Jishnu teachers’ performance, as measured by their stood the function linking performance
Das (“Report Cards,” spring 2009 Program effects on student achievement. While the to rewards.
Meeting) arranged to provide reports in cost-benefit ratio of the program they study Judith Scott-Clayton (“On Money
112 randomly selected educational markets is not as impressive as the results of the and Motivation”, fall 2008 program meet-
in Pakistan. The intervention was purely information program in New York City ing) studies a West Virginia incentive
informational: no explicit rewards or pun- (16240), the improvement that Taylor and scheme for college students. The program
ishments were included. The authors find Tyler see is entirely within teacher. As a offered free tuition to students who main-
that the report cards improved learning rule, it has been hard for researchers to tained a certain minimum course load
by 0.10 standard deviations and increased produce credible evidence that teachers and minimum GPA (2.75 in the fresh-
enrollment slightly. Private schools that improve simply through being evaluated men year, 3.0 thereafter). Since students
were initially bad — those with below and then informed about how to improve were not randomly assigned to the pro-
median scores at baseline — improved their instruction. Even if such evaluation gram, Scott-Clayton exploits differences
especially strongly: learning gains were systems are an expensive means of improv- in the timing of implementation and dis-
0.34 standard deviations. Private schools ing achievement relative to some of the continuities in the eligibility formula to
that were initially good did not improve informational interventions described generate credible estimates. Not only does
learning but did cut their fees. Government above, they remain inexpensive relative to she find substantial effects on achieve-
schools were somewhat less responsive than most resource-type interventions. ment, she also finds that the effects are
4 NBER Reporter • 2011 Number 1
highly concentrated around the thresh- times what we would predict if the dis- lyzed by David Figlio and Cassandra Hart
olds for annual scholarship renewal, indi- trict had spent the same amount on class (16056) and by Winnie Chan and Robert
cating that the program’s effects come via size reduction. (The class size comparison McMillan (“School Choice and Public
the incentives it provides, not simply via is based on Project Star, which generates School Performance, fall 2009 program
relaxing financial constraints. some of the highest credibly estimated meeting). Although the authors investi-
C. Kirabo Jackson (15722) studies effects of class size reduction.) gate programs in different locations — Fi-
incentives for students and teachers based Karthik Muralidharan and Venkatesh glio and Hart analyze a Florida corpo-
on Advanced Placement (AP) scores. Sundararaman (15323) investigate per- rate tax credit program and Chan and
The program he analyzes (“APIP”) pays formance pay for teachers, using a pro- McMillan analyze a tax credit program
high school students and their teachers gram in India that they themselves largely in Ontario — both teams of authors
between $100 and $500 per score of three designed. Hundreds of schools were ran- exploit variation in pressure on public
or above on an AP exam. To give a sense domly assigned to have their teachers schools that arises through pre-existing
of magnitude of rewards that a person receive higher pay for higher students’ differences in the local availability of pri-
could earn, the maximum that a teacher scores. Hundreds of schools were assigned vate schools. Both teams find that pub-
has ever earned in one year is $11,500, to an alternative treatment that gave them lic schools respond to the potential loss
and the maximum that a student has ever additional resources equal to the value of of students to private schools by raising
earned in high school is $1,400. Because the performance pay. Muralidharan and their students’ achievement. Neither team
the program is not randomly assigned to Sundararaman find that students in incen- of authors finds evidence that differen-
schools, Jackson has to use a detrended dif- tive schools improved their performance tial student sorting (poor students dispro-
ference-in-differences strategy: essentially, by 0.28 and 0.16 standard deviations in portionately leaving the public schools)
the achievement trends of schools that math and language tests, relative to con- accounts for the improvement.
adopted the program earlier are compared trol scores. Students scored significantly
to the achievement trends of schools that higher on “conceptual” as well as “mechan- Summing Up
adopted it later. Because the program’s ical” components of the tests and also per-
sponsors were not able to roll out the formed better on subjects for which no New themes emerge in research
program in a single year to every school incentives were given. These results sug- because researchers find themselves con-
interested in adoption, the late adopters gest that the students’ gains in achieve- vinced by previous studies that some ques-
are fairly idiosyncratically selected from ment were authentic, not mere “teaching tions remain answered, thereby exposing
among schools who applied. Thus, the to the test.” The gains in schools that sim- other questions as likely to be important.
results are quite credible. Jackson finds ply received the extra resources were one- Thus, I think that it is a measure of the suc-
that students who participate in the pro- third to one-half as large as the incentive- cess of the NBER’s Economics of Education
gram are more likely to attend college driven gains. Program that, although some recent
and persist in college beyond their fresh- Several authors have examined what research extends and elaborates themes
man year. In addition, Black and Hispanic happens when schools face incentives. I identified previously, I did not predict
students are more likely to graduate from For instance, Jonah Rockoff and Lesley the themes of much recent research in
college. Turner (14564) and Hanley Chiang my previous program review. In particu-
Eric Bettinger (16333) examines cash (“Accountability Pressure on Failing lar, it is encouraging that so much current
incentives for students funded by a philan- Schools,” fall 2008 Program Meeting) research focuses on issues like informa-
thropist in Coshocton, a poor city in the use regression discontinuity methods to tion and incentives that economists have
Appalachian area of Ohio. Schools and show that schools that “just fail” accord- long regarded as important. That informa-
grades in the city were randomly assigned ing to their state’s accountability program tion and incentive-type interventions also
to have their students get rewards of up raise their students’ achievement more tend to have propitious cost-benefit ratios
$75 per year for “proficient” scores and than schools that “just pass.” In these two is a bonus. Finally, it is important that
$100 per year for “advanced” scores on studies, failing schools faced several pos- NBER researchers continue to pioneer
Ohio’s statewide exams. Bettinger finds sible consequences: students could trans- rigorous methodological designs and cre-
that the incentives improve math scores by fer out, principals could lose their jobs, ate good data that allow them to analyze
0.15 standard deviations but he does not and schools could be closed completely such interventions.
find similar effects on other subject exams. (though this was rare). Since the pass-
The Coshocton program was highly bene- ing thresholds were unknown to schools
ficial relative to its costs: the program costs in advance, the regression discontinuity M.J. Bowman, “Theodore W. Schultz’s
were only fifteen hundredths of 1 percent designs produce convincing results. Contributions to Economics,” The
(0.15 percent) of the district’s per-pupil A very different source of school Scandinavian Journal of Economics, Vol.
expenditures. The effects of this inexpen- incentives — competitive pressures gener- 82, No. 1 (1980), pp. 80–107
sive program on achievement were 250 ated by private school vouchers — is ana-
NBER Reporter • 2011 Number 1 5